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The current energy revolution is resulting in a move away from large traditional generation connected to consumers via the transmission network, to smaller local generation connected to the same distribution networks as the consumer. This paradigm shift requires a similar change in how distribution grids are planned and operated, and even a re-imagining of the role of the distribution operator itself. No longer is the distribution grid a passive energy delivery system with one-way flows of electricity from large power stations to homes and businesses; it is now the critical component for enabling the new generation of distributed energy resources (DER) and the value that they bring.
The passive approach to grid operation worked very well for many decades, keeping costs low and power supplies reliable. However, as load grows relatively slowly and its daily, weekly and annual patterns are predictable, grid expansion can be relatively easily planned and constructed. Because access to electricity is a universal right the costs of constructing, repairing, operating and expanding the grid are traditionally allocated across the entire customer base through their electricity bill.
New types of distributed energy resources, including renewable generation and energy storage, are different. They have different needs and objectives to an electricity customer; they are deployed to make money rather than serve basic human needs. They need the distribution grid to export their product, electricity, to market rather than to power businesses, heat homes or cook dinners. They can be deployed incredibly quickly and with little warning, meaning that grid expansion can’t keep up due to its lengthy planning, consenting and construction timetables. These changes are profound, rapid and very expensive to solve with the traditional approach to grid expansion and passive operation.
A new alternative has emerged through pioneering work in the UK.
A Managed Connection (sometimes called a Flexible or Alternative Connection) is a connection to the grid where the connected device, such as a wind farm, PV plant or energy storage device, has its import or export managed to the actual, measured and instantaneous hosting capacity of the grid. This active approach to grid management allows redundancy in the grid and diversity amongst users to be tapped into, allow a doubling or trebling of the economically viable grid capacity before grid expansion is required. A number of trial projects in the UK have already demonstrated the benefits of the approach. These include reducing the cost of connection by up to 90% and the time to connect from years to months. Managed Connections have saved the overall energy system (whether the cost is paid for by the DER developers or the end customer) over €200m in connecting over 50 different DER projects in the UK.
However, what would appear to be an obvious solution to the challenges of spiralling grid costs and customer delays faces a number of headwinds. These include how the cost of connections is allocated and who benefits from the reduced cost of a managed connection. There are also issues around the lack of incentive at present for distribution utilities to adopt the solution and whether other regulatory mandates prevent, or appear to prevent, adoption.
In the UK, the benefits of Managed Connections are mostly felt by DER developers who would normally bear the majority of the grid expansion costs and also by the distribution operator (and ultimately the end consumer) who fund the rest. In most of continental Europe, legislation and regulation has been interpreted differently. The costs of distribution grid expansion to accommodate DER are borne by the distribution operator and socialised across electricity customers. This has contributed to spiralling grid costs on customer bills and reputational challenges for the distribution operator. The distribution operators (and their shareholders) are relatively happy with the status quo; as they can add the new assets to their asset base and make increased returns over the following decades. However, for their electricity consuming customers this means rapidly growing customer bills and for the distribution operators it means increasing reputational damage, pressure on capital to fund the expansion and increasing challenges in delivering the works.
There are signs of change however, with Germany likely to pass an amendment to the Renewable Energy Act (EEG) later this year to allow distribution operators to implement Managed Connections or, as they call it, Dynamic Curtailment. Unlike in the UK, where the cost of energy curtailment is borne by the DER operator in exchange for a faster and cheaper connection, curtailment will be both capped uncompensated (at 3%) and compensated thereafter. Various studies suggest that 3% curtailment could double hosting capacity and deliver €100m’s of benefits to bill-paying consumers.
Managed Connections or Dynamic Curtailment is rapidly gaining acceptance as the most economically efficient and expedient way for integrating DER into the grid. It requires active rather than passive management. It requires control and automation rather than transformers and cables.
For the sake of consumers, and to make sure that greenhouse gas reduction targets can be met, let’s hope that the modification to the EEG Act is passed and that the distribution operators change to embrace the opportunity. Finally, interacting with DER in this way is the pre-cursor to opening up new revenue streams for DER and paving the way for new utility business models. So while some utilities will put up resistance some enlightened distribution operators will see this as the first opportunity to embrace the concepts that have been debated and discussed for many years as to the future role of a true Distribution System Operator.
Alan Gooding is a director and co-founder of Smarter Grid Solutions, which is UK based company deliveringsolutions to electricity network operators to cost effectively facilitate the transition to a low carbon economy.